In the high stakes world of electronic trading, a well-informed trader is more likely to be a profitable trader. Traders in electronic markets depend on accurate and current market information in order to make informed trading decisions. This is especially true for traders who engage in high-frequency algorithmic trading where market opportunities can be extremely brief.
Market information is typically delivered or communicated to the trader by subscribing to one or more markets. For example, a trader may subscribe to receive live market information and updates for equities traded on the NYSE. The CME also provides market data on a subscription basis to traders interested in futures. Regardless of the source, the ability of the exchange to provide accurate and current market data to the trader's client device is vital to maintaining a profitable trading strategy.
Market information typically includes the current Best Bid and Best Ask (sometimes referred to as the inside market). Market depth, which generally includes Bid and Ask quantities at varying price levels that are available in the market, may also be included in the market information available from the exchanges. Market depth can be any number of price levels deep and is typically limited to some extent by the exchange in order to accommodate bandwidth issues. Market depth and pricing are not the only types of market information offered by exchanges. Exchanges may offer a wide variety of other market information types, including last traded price, last traded quantity, net change, and total volume.
Market information data feeds can contain an enormous amount of data. This is especially true in markets having a high level of liquidity where changes to the order book can occur at a high rate. While traders generally benefit from receiving as much information as possible, network limitations on the trader's end can cause the processing capacity of the trader's system to be overwhelmed and unable to properly process massive amounts of market information updates.
Measures have been taken to address the issue, but each suffers from drawbacks. In one approach, the most current market data is always sent to the trader/client device at a predetermined time interval. While this approach generally does well in keeping the market data pipeline from becoming clogged, it is inflexible and often prevents market data from being delivered to the trader in a timely manner. If a market update is sent by the exchange at the beginning of the time interval, the trader is forced to wait until the end of the time interval before receiving the new market information.
Another approach is to send a market update to the trader client each time there is a change to a market data parameter, such as a change to the inside market or the book depth. While this approach provides a quicker response to market changes, problems arise when market changes occur rapidly. As the amount of incoming market data surpasses the trader's network bandwidth, market updates are queued and published in a first in, first out manner. As the queue grows, so too does the latency of the market data being published to the trader client.
What is needed, therefore, is a more effective way to publish market information to a trader's client device.